Examining the Nexus Between Military Expenditure and Economic Growth - Evidence from Nigeria

The relationship between military expenditure and growth is one of the most contentious topics of inquiry in macroeconomics. Researchers have failed to reach a consensus despite the large volume of published studies in the literature. This study contributes to this debate with a focus on the case of Nigeria. The focus on Nigeria is warranted by the increasing role of the military consequent upon the rising levels of insecurity in the country. Empirical analyses are aided by a novel dataset on various measures of milex and growth collected from Stockholm International Peace Research Institute (SIPRI) and the World Development Indicators (WDI). The dataset is mainly employed within the framework of the Toda-Yamamoto-Dolado-Lütkepohl (TYDL) Granger non-causality test which is robust to the integration and cointegration properties of the data. Preliminary tests for integration of the variables are, however, carried out to determine the maximum order of integration as required by the TYDL test. Additionally, stationarity tests are necessary for determining whether a model is composed of nonstationary variables, in which case a cointegration test will be necessary for determining whether a linear combination of such variables is stationary. The analyses of impulse response functions and variance decomposition provide complementary evidence to the TYDL test. The study leads to some interesting results. Johansen cointegration test indicates that milex and economic growth are not cointegrated in any of the models containing nonstationary variables. Granger non-causality tests present a strong causality from miles to growth and a weak causality from growth to miles. These results tend to be corroborated by the impulse response and variance decomposition analyses. Overall, the results affirm previous findings that milex promotes economic growth. This has a strong policy implication for Nigeria. Given the persistent problem of conflict, terrorism, and insecurity in the country on one hand, and the rising need for public spending in the non-military sectors on the other, it is necessary for the government to balance its spending between the military and civilian sectors so that the benefits accruing from the military will not create a loss of opportunities in other sectors.